Jobless Growth in Africa

Despite the fact that East Africa remains the fastest-growing sub-region in Africa with an estimated growth of 5.6 percent in 2017, up from 4.9 percent in 2016, it still grapples with low job growth rates. The African Economic Outlook 2018 by the African Development Bank Group (AFDB) further notes that it is imperative for sustained economic growth to create jobs which positively impact poverty reduction and lead to more inclusive growth.


According to the report, the combination of high economic growth and low job creation has given rise to the claim that Africa is experiencing jobless growth. The findings of the document point to the fact that in the last decade, faster-growing countries in Africa actually generated fewer jobs than countries that grew more slowly. The slow job growth has mainly affected two demographic groups; women and youth aged between 15 to 24 years. Estimates of African population data indicate that it had 226 million youth in 2015, a figure projected to increase 42 percent, to 321 million by 2030. Its labour force is also projected to rise from 620 million in 2013 to nearly 2 billion in 2063.

In an effort to sustainably reduce poverty, economies must create more productive jobs, which are better remunerated and better-quality jobs. For this to happen, AFDB recommends that countries engage in structural transformation, which is a process whereby capital and labour is shifted away from low-productivity sectors toward higher-productivity sectors.

Structural transformation has encountered slow implementation due to a couple of reasons. First, the agricultural sector remains the dominant source of jobs in Africa, accounting for about 51 percent of employment in these countries, most of it in subsistence agriculture. The document highlights that almost 84 percent of Africa’s poverty is a result of employment in agriculture and services sectors. Second, the shift to manufacturing has been focused toward a comparatively small sector, which has the third-lowest relative productivity level after agriculture and services. Also, the labour resources that left agriculture have shifted toward wholesale and retail trade, much of which is characterized by low-productive informal activities.

As per findings of the report, the informal sector remains a key source of employment in most African countries, accounting for approximately 70 percent of jobs in Sub Saharan Africa and 62 percent in North Africa, with 93 percent of all job growth in Africa in the 1990s being accredited to the informal sector. The last factor that has slowed down the implementation of structural transformation is the fact that the public sector has generally been the main source of higher-paying formal sector jobs in many African countries. Fiscal constraints and demographic change have combined to limit the future scope of the public sector as a driver of formal sector employment growth.

One key policy recommendation that was proposed on the way forward as a priority for African governments is to encourage and embrace a shift toward labour-absorbing growth paths. In this sense, they should put in place programs and policies aimed at modernizing the agricultural sector, which employs most of the population and is typically the main step toward industrialization. A second priority is to invest in human capital, particularly in the entrepreneurial skills of youth, in an effort to facilitate the transition to higher-productivity modern sectors.

In as far as reversing the fortunes of the manufacturing sector, it is proposed that emphasis should be placed on light manufacturing, which is typically considered key to job creation in Africa. Doing so requires developing export capacity, given the continents small domestic markets. The interrelated nature of agriculture and manufacturing is crucial to achieving job creation as both are labour intensive. In the highly heterogeneous service sector, the way forward is to develop modern services while improving the productivity of informal activities.

Seeing as informality is a key component of African labour markets in that it accounts for an estimated 50–80 percent of GDP, 60–80 percent of employment, and up to 90 percent of new jobs on a continent where more than 60 percent of the population performs low-paid informal jobs, policy makers should avoid burying their heads in the sand and recognize the diversity and importance of the sector as a profitable activity that may contribute to economic development and growth.

Informal Economy Analyst.


Improving Informal Business

The past decade has been characterised by the gradual growth of informal businesses in the sub Saharan region. A global research-policy network, Women in Informal Employment: Globalizing and Organizing (WIEGO), states that regional estimates of the size of the informal sector provide a useful overview, but they hide the diversity that exists within a region.

In Sub-Saharan Africa for example, informal employment tends to account for a smaller share of non-agricultural employment in southern Africa (33 per cent in South Africa and 44 per cent in Namibia) relative to countries in other sub-regions (82 per cent in Mali and 76 per cent in Tanzania). Some of the factors that have accelerated this growth include the rapid rate of urbanisation, a decrease in the number of formal employment opportunities as well as increased rates of poverty.


While it may be argued that informal businesses provide a source of living for many families that would have otherwise been struggling to get by, the jobs that exist therein are poor quality ones. This is due to the fact that jobs in this sector of the economy do not offer any health or terminal benefits, as most operate on a wage-based model. Also, the conditions under which most operate are not conducive for the generation of business opportunities that may enable them to scale. For those that are involved in manual labour, a vast majority are exposed to highly risky environments as they do not have the requisite protective gear that would help them avoid work related injuries. Another common factor of businesses in the sector is their low level of productivity.

Policy makers have suggested various interventions for the sector that would see the improvement of informal businesses in a way that increases their incomes and offers some sort of decency to the lives of those engaged in businesses in the sector. One of the proposals that has been put forward is that of formalising informal businesses. It is often seen as a positive intervention from the perspective that it would not only make these enterprises more profitable, but also increase the tax base of a government, given the expansive nature of the sector.

One of the reasons that discourage informal businesses from formalising is the cost that comes with formalisation. Once they are formal, businesses are required to obtain certain licences as well as adhere to health and safety standards, all of which have a higher price tag than the cess fees that they are accustomed to paying. This aspect would naturally require such businesses to factor in these costs to their goods and services. An increase in pricing generally means that they would lose out on a certain percentage of their clientele who were accustomed to the lower prices.

Furthermore, given that the clientele of these enterprises mainly consists of low income households, the reality of a reduction in their base support system due to an increase in pricing makes the formalisation narrative a hard sell. A conundrum exists in the sense that on one hand, these businesses would like to grow to become more profitable entities while at the same time wanting to maintain their existing customer base. On the other hand, most of them would prefer to remain under the radar of the authorities in a way that minimises the taxes that they would have to pay and extra costs that accompany formalisation.

As it stands, most informal businesses are yet to be convinced that they will benefit from formalizing. When selling the formalisation narrative, policy makers and authorities need to better articulate the benefits that come with formalisation for informal businesses. This should be accompanied with interventions that enhance their business management capabilities, skills upgrading as well as increased access to finance as a precursor to formalization.

Informal Economy Analyst.

The Significance of Investing in the Young Population

The Kenya Economic Report 2015 whose theme is ‘Empowering Youth through Decent and Productive Employment’ released by the Kenya Institute for Public Policy Research and Analysis (KIPPRA) is timely as it provides an indepth look at youth empowerment with a major focus on employment. The youth account for about 6o% of the labour force in the country, which is estimated to be growing at a rate of 2.9% per annum. According to the report, Kenya’s median age is estimated at 19 years and the proportion of the population that is below 15 years is estimated at 43%. Further, 78% of the population is aged below 35 years.


A big challenge facing most youth is the lack of decent and quality jobs; almost three out of every four youth are engaged in the informal economy, traditional agriculture and pastoralist activities. The share of employment in the informal sector in total employment, excluding traditional agriculture and pastoralist activities, increased from about 17.1% in 1983-1987 to 82.7% in 2013/14. This significant increase in the informalization of employment can be attributed to a shrink in formal employment opportunities over the years. As is the case in most parts of sub Saharan Africa, most entrepreneurs opt to venture into informal business as a last resort for it is often the only way they can earn a living.

With Kenya’s median population age being below 20 years of age, in order to arrest the rapidly growing rates of unemployment that have seen a spike in the growth of entrepreneurial informality, the report calls for the development and implementation of employment creation policies and strategies to that will engage this demographic group. Some of the suggestions include investment in productivity enhancement skills, and quality job creation in fast growing and labour-intensive sectors such as services, agriculture and industry, while promoting the manufacture of export goods for the regional and international markets.

Given that about 88 per cent of manufacturing sector employment is in the informal sector, potential interventions in the sector would be a good place to begin. As is the norm, jobs in the informal sector are characterized by low wages and a general lack of social security benefits. In this sense, the quality of jobs provided by the sector are of poor quality. Also, due to the reason that informality is driven by incentives to minimize tax and compliance costs as well as other external factors such as challenges to access of credit, the report suggests that in order to create quality jobs, policy making should mitigate some of the constraints limiting their transformation to formal enterprises.

It is interesting to note that the report also indicates that Kenyan micro, small and medium sized enterprises (MSMEs) in manufacturing represent over 60% of establishments and account for 29% of those employed in manufacturing. The breakdown of MSMEs involved in manufacturing according to the 2016 MSME Report by the Kenya National Bureau of Statistics (KNBS) is 95% as micro, 3.8% as small and 1.2% as medium sized enterprises. The sector was ranked as the highest contributor accounting for 24.3% of MSMEs gross value added. At publication of this report, this figure stood at 11.7% of gross value added. This represents a 12.6% increase over a two-year period. The significance of ingraining a value addition angle into the manufacturing processes of MSMEs cannot be overstated as it will ensure that manufacturers in this sector of the economy not only reap the benefits of fetching higher market prices for their products, but also enhance the growth of robust value chains that are essential to the successful implementation of national industrialization plans. As is the case with most informal enterprises, firms grapple with issues that include limited access to technology as well as limited research and development activity.

It is clear that tackling the challenges posed by informality is a key to providing a sustainable solution to youth unemployment in the country. Focusing on aspects that improve their productivity such as upskilling, increased access to technology as well as investing in research and development processes will enable those that are engaged in manufacturing to venture into value addition for their products. The trickle-down benefits of implementing policies that are centred around overcoming the aforementioned challenges will be an investment in this country’s future.

Informal Economy Analyst.


Comparative Analysis of Informal Economy in Nigeria and Kenya

The Informal Sector in Nigeria and its Impact on Development is a book by Stephanie Itimi which is based on research on the informal sector in Nigeria. It focuses on three key areas namely employment, gender equality and tax evasion. Employment is looked at from the angle of the effect that the informal sector has on job creation. Gender equality merges with employment and is looked into by examining the role that the latter plays in empowering women financially. The author also provides an analysis of the complex relationship between the informal sector and the principle of tax evasion. This article aims at providing a comparative analysis of the informal sector in Nigeria and Kenya, based on the findings of the book, as well as those from research conducted on the Kenyan informal sector.


In Nigeria, the informal sector accounts an estimate of 70% of the total industrial employment. The country has the largest informal sector on the continent, which is enhanced by its population size as well as high levels of poverty. The Federal Office of Statistics (FOS) states that the informal sector creates 25,000 to 35,000 jobs each year. However, although this is highlights the job creation role of the informal sector, the author argues that with a country of 153.9 million people, the impact of the informal sector on unemployment is quite insignificant.

The Kenya Economic Survey 2017 indicates that the total number of new jobs created in the economy was 832.9 thousand. Of these, 85.6 thousand were in the formal sector while 747.3 thousand were created in the informal sector. The share of new jobs created in the informal economy represents a 5.9% growth from 83% recorded the previous year to 89.7%, or 13.3 million people. Nigeria outweighs Kenya’s working population by 66.33 million, however the significant gap is not reflected in the differences in the number of people in the informal sector between Nigeria and Kenya. This is due to Kenya having 89.7% of its working population in the informal sector, while Nigeria has only 34.6% of its working population in the informal sector.

In her book, Stephanie points out that the percentage of women in the informal sector of any economy is high, especially in developing and transition economies by referencing an ILO report which found that 46% of the informal sector in urban Nigeria was dominated by women. She states that the informal sector is seen as a major source of employment for women due to its suitability to their needs. The Micro Small and Medium Sized Enterprises Report 2016, released by the Kenya national Bureau of Statistics (KNBS), indicates that 32.2% of licenced establishments were owned by women, while 60.7% of unlicenced establishments were also owned by women. According to Bitange Ndemo, an associate professor at the University of Nairobi, these statistics mirror a global trend whereby women are over represented in the informal economy; a factor that is largely driven by survival, rather than the exploitation of an entrepreneurial opportunity. In terms of financing informal business, he argues that the problem faced is more of the cost of finance rather than it’s access.

On tax evasion as regards informality in Nigeria, the author notes that research has shown that there is a positive correlation between a rise in taxation and a rise in tax evasion, concluding it as a motivational factor for people migrating from the formal to the informal sector. However, factors such as an increase in tax evasion punishments such as heavy fines and prison sentences reduced the likelihood of people participating in the informal sector. Informal Sector and Taxation in Kenya is a publication by the Institute of Economic Affairs (IEA) that stresses the significance role that the informal sector can play in the quest to expand the tax base, noting that the intention of bringing the informal sector into the tax net is to facilitate the transition of these businesses to the formal sector and reduce barriers for all businesses. The paper shows that by extending the tax net to the informal sector, for example in the year 2008, the Kenyan government could have increased the tax base by approximately 7.66 percentage points, translating to revenue worth Kshs.79.3 billion.

In conclusion, as is the case in as far as data on the informal sector is concerned, the author indicates that one of the biggest impediments encountered during her research is its limitation which involved the omission of data in some years and unavailability of up to date research. To this end, she proposes that primary research should be conducted in to have a more up to date and realistic perspective on the topic. The part the informal sector plays in enhancing gender equality is restricted on just income, as female participants are able to easily obtain employment in the informal sector and adapt their job rule to their social and culture gender obligations. Also, government agencies should move from harsh approaches such as destroying informal market areas and increasing tax evasion punishments to more liberal approaches that empowers the activities of the informal sector through the provision of a conducive environment and inclusive policies which enhances productivity within the sector and enables taxation.

Informal Economy Analyst

Informality – Africa and Latin America

In the last article, I gave an overview of the informal sector in both Latin America and Africa while looking at the general features that characterise them. In this piece, I will delve into the similarities and differences in their operation while putting into perspective the opportunities and challenges that they face in line with the environment in which they operate. It is interesting to note that data on this sector of the economy is scanty and shallow in most cases. This signals to the side-lining of this area of the economy despite the magnitude of its existence. The fact is that there needs to be more investment into ventures that will provide a strong foundation for urgently needed interventions in the sector.

In as far as opportunities are concerned, the informal sector provides employment for the millions who miss out on formal employment opportunities. In Kenya, it contributes 90% of the employment demographic outside agriculture. In this sense, it acts as a social safety net by providing a source of income to a majority of households. The sector also presents a crucial access to market for large formal firms due to its proximity to a wider population network in both rural and urban markets.

One of the biggest challenges that arise from informality is the low levels of productivity in firms that operate in the sector. An analysis conducted by the International Monetary Fund (IMF) shows that on average, the productivity of informal firms is only one fifth to one quarter that of formal firms in Sub-Saharan Africa. Some common factors that conceive this phenomenon include difficulty in accessing finance, as well as the use of manual techniques in their operations. The latter presents a challenge in the form of producing non-standardised goods and reducing the amount of output while the former makes it difficult for them to scale their operations. Other challenges range from poor access to markets, insufficient entrepreneurial to regulatory barriers.

It is interesting to note that the IMF analysis puts the average size of the informal economy in Sub Saharan Africa between 2010 and 2014 at 38 % of Gross Domestic Product (GDP), only surpassed by Latin America’s, which stands at 40% of GDP. Between 1991 and 1999, the average size of the same was 45% for Sub Saharan Africa and 43% for Latin America. The fact that there has been a reduction in the size of informal economies in the two regions may indicate that there have been some efforts by policy makers to pay attention to the some of the challenges that informal businesses have to contend with. This can be seen by the increasing number of initiatives that target this sector of the economy by successive governments.

One of the demographic groups that form a large part of informal sector dynamics is the youth. It is with this in mind that the Latin American Economic Outlook 2017 focuses on youth, skills and entrepreneurship. The report stresses the importance of skills and entrepreneurship from the perspective of these being used as tools to empower the youth in the region to develop and engage in knowledge based economic activities in a way that boosts the region’s productivity. SMEs in the region account for 80% of employment and more than 90% of firms. However, formal firms contribute 70% of GDP in the region, which highlights the issue of productivity in the informal sector, a phenomenon that is not exclusive to the region.


One of the key recommendations that the report proposes to policy makers is that it asks them to go a step further by providing the necessary support tools to implement theoretic policies that revolve around financing, services and capacity building, market creation, regulatory framework and the diffusion of an entrepreneurial culture. It notably articulates the importance of the private sector in supporting start-ups by stressing the importance of strengthening the link of young entrepreneurs with business networks by supporting mentoring programs.

What comes out clearly is that the challenges that businesses in the informal sector are similar in these two regions of the world, given the environment in which they operate. Considering the magnitude of the sector in these two regions, interventions that are aimed at harnessing its potential should be embraced and seen through the lenses of it being a viable driver of economic growth.

Informal Economy Analyst


Economic Inclusion in Africa and Latin America

Global development is an aspect that is at the centre of programs that are aimed at improving the quality of life of people around the world. Africa and Latin America are home to most of the world’s developing and third world economies where poverty is rife. In this sense, they are constricted in their growth by socio-economic dynamics that revolve around health, education, income and occupation among other factors. A majority of the societies that comprise the populations of these nations earn a living through the informal economy.


Hernando de Soto is a Peruvian economist who has for a long time been a champion of the informal economy. He has authored books on how governments should best interact with this crucial sector of the economy with the aim of harnessing its power and formalising their operations, with special reference to Latin American economies. In a review of his book ‘The Other Path: The Invisible Revolution In The Third World’, published in the New York Times, de Soto argues that Latin Americans need to look as much at their own societies as to the outside world for the causes of their poverty and insists that they are caught up in policy regulations that deliberately inhibit innovation and initiative.

He proposes that the way out of the situation lies in the region’s informal sector. Backed by research that he conducted in urban areas of Peru, he concludes that despite decades of effort to stamp it out, the informal sector is the most dynamic part of the informal economy for it accounted for more than half of the country’s production. In other countries in the region such as Argentina, Mexico and Columbia, he said the figure is at least one third of production.

The situation in Africa is not far from that in Latin America in as far as the size and dynamics of the informal economy. Estimates from the International Labour Organization put the average size of this sector in Sub-Saharan Africa as a percentage of gross domestic product at 41%. In Kenya, this sector contributes 35% of GDP and accounts for 89.7% of employment outside agriculture. Over the past decade, there have been interventions by governments in the region to address issues that the sector is grappling with such as access to finance and upskilling.

The establishment of programs such as the Women Enterprise Fund and the Uwezo Fund in Kenya were set up to target women and youth, who form the bulk of informal business operators in the country. Such interventions need to be backed by policy amendments that facilitate the business environment in which the informal sector operates in a way that allows them to grow in the long term.

By releasing the creativity and energies of millions of would-be entrepreneurs, Mr. de Soto believes that national economies in Latin America can be strengthened and the region can enjoy a spurt of growth. The same can be said for Africa. Entrepreneurs, he concludes, would join the mainstream economy, thereby improving their material status and gaining new opportunities, were they not prevented from doing so by a legal system designed to thwart them.

Informal Economy Analyst



Analysis of the SME Competitiveness Report 2017

The SME Competitiveness Report is an annual document that is published by the International Trade Centre (ITC) whose goal is to provide guidance to policy makers, business managers and trade and investment support institutions. This year’s report SME guide to regional value chains gives a way forward to stakeholders on how to become more attractive partners for lead firms, as well as how to strengthen their bargaining power within these value chains. It looks at how SMEs can best leverage value chains with a specific focus on regional value chains and how they can use these as a platform for internalization.


It is interesting to note that over the past last two decades, significant strides have been made in as far as creating a conducive environment for inclusivity in regional trade agreements. Provisions that have been made for gender equality and SMEs has seen the share of preferential trade agreements entering into force with this inclusivity angle more than triple since the late 1990s.

What comes out clearly is that regional value chains are more prevalent and easier to access than global ones. Generally, value chains are clustered around regional activities. However African firms tend to operate in a different manner as it was found out that they are more likely to join production networks outside of the continent. This is especially the case for East African Firms that typically export intermediate inputs to firms in East Asia, Europe or North America.

Also, the lack of regional integration in Africa means that it is more difficult for SMEs on the continent to lower their transaction costs and tap into regional value chains. To this end, the report shows that on the global scene, regional value chain activity was lowest in Africa. In their ranking of SME regional competitiveness, South Africa leads the score on the continent, but lies significantly behind top performers in other regions of the world. The low ranking of Sub Saharan African SMEs is attributed to the lack of a clear headquarter economy in the region.

Further, SME firms generally engage in business functions of low complexity, suggesting that they only capture a small share of value added in the chains. In order to gain traction in the right direction, SMEs can increase their bargaining power by improving the complexity of their goods and services and by also increasing the pool of their buyers. This can also be achieved by focusing on how to improve services as higher value is associated with segments of a value chain that trade services, and not goods. In both developed and developing countries, services are seen to be the glue that holds value chains together.

The report is timely and relevant for stakeholders for it clearly states the importance of having a well-coordinated process around the drafting and implementation of government policies aimed at regional integration processes in a way that enables them to spur the growth and success of SMEs by enabling them to tap into wider markets.

Informal Economy Analysis